Casio remains a watchword as fund faces fallout from China

F FEW funds with exposure to equities – here or abroad – have b been spared fr from the sharp ma market fallout caused by a pric pricking of the Chi Chinese growth h story. Stock markets have trembled in unison causing fund values to drop.

Jupiter Japan Income is no exception. Though its portfolio has few firms with major exposure to China, the fund’s value has slipped five per cent over the past month.

It’s disappointing for manager Simon Somerville and investors, but he is confident the future for Japanese equities is a bright one.

‘I’ve run the fund from launch ten years ago and we’ve been through some difficult periods – the Lehman crisis in 2008 and the earthquake in 2011,’ he says.

‘But, in spite of what’s going on in China, the corporate world in Japan is changing for the better and shareholders are beginning to get a better deal,’ adds Somerville. He argues that the fund’s focus on income means it is ideally placed to benefit from the trend among many listed companies – with government encouragement – to stop hoarding cash and use it either to pay higher dividends or buy back shares.

Companies engaged in such shareholder-friendly actions form the bulk of the 45-strong portfolio.

Somerville has immunised the fund from the fallout from China as much as he can. He has steered clear of firms heavily dependent on exports to China, preferring to concentrate on what he calls ‘domestic earners’.

The firms he holds that are export focused tend to do a big chunk of their trade in the US – such as car maker Subaru and tyre maker Bridgestone.

Where China does play a key role in the fund is in the tourism sector. A weak yen has boosted the number of Chinese coming to Japan. And they spend far more than British or American tourists.

‘The Chinese come to Japan and buy in bulk. They will purchase five Casio watches and take four back for friends, knowing they are the real thing,’ says Somerville.

Casio, not surprisingly, is a key fund holding, as is Japan Airlines, which is also benefiting from the influx of Chinese tourists.

Somerville does not believe China’s economic woes will stem this tide.

Brian Dennehy, managing director of broker FundExpert, says long-term investors should buy markets that are cheap. And among the cheapest, he argues, are China and Japan.